Pharmacy benefit managers (PBMs) provide their services to health care sponsors as a way to manage prescription drug benefits and costs. While they emerged in the mid-1980s as entities that processed prescription drug claims, they have expanded to provide a wide range of services, typically including developing and managing drug formularies and pharmacy networks and providing drugs through mail-order and specialty pharmacies. Because PBMs act as intermediaries between health plan sponsors and drug manufacturers and pharmacies, they are sometimes referred to as middlemen in the drug industry.
In recent years, federal and state litigation as well as various stakeholders in the prescription drug industry have alleged that PBMs sometimes engage in unfair business practices. This perception results from the lack of transparency in PBM costs and profits, which occurs because PBMs consider their contract negotiations with drug manufacturers and pharmacies confidential and proprietary. As of December 2006, three states and the District of Columbia have passed legislation that addresses transparency, and another 28 states have considered such measures. In addition, two states have passed legislation to regulate PBMs. Health plan sponsors and PBMs have also responded to these concerns by taking steps to increase transparency. The Legislature could give market forces an opportunity to increase transparency or could consider legislation to regulate PBMs.

Inflated Pricing and Confidential Information Prevent Medicaid from Ensuring Lowest Prescription Drug Prices
Report 06-07 January 2006

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